Collins v. R., [1998] 3 CTC 2717

Sarchuk T.C.J.:

This is an appeal by Gordon Collins (the Appellant) from an assessment of tax with respect to his 1992 taxation year. In computing his income for that year, the Appellant claimed $7,479.27 as a business investment loss. That amount was subsequently revised to $8,983.06 as set out in Schedule A to the Reply to the Notice of Appeal of the Minister of National Revenue.

There are a number of documents before me as well as the evidence of Brenda Lynette Collins, who was one of the individuals involved in the transaction before the Court. The basic facts are set out in paragraphs 8(a) to 8(i) of the Reply. Those paragraphs are not in dispute.

The position of the Appellant has been hampered somewhat by the absence of perhaps key witnesses and documents. Nonetheless, the testimony of Ms. Collins establishes the following. First, I am satisfied that the four partners in this instance were equal partners. I base my conclusion on her testimony to the effect that if the venture was profitable it was understood that they would all be equal partners in terms of sharing the profits.

That, essentially, is the only acceptable evidence before me on the partnership issue. The argument that somehow this was only a matter of couples getting together and was not a partnership just does not wash. I cannot put it any more simply than that. That concept has no place in law; it has no place in fiscal matters; it has no place in the Income Tax Act.

The fact that one of the partners, or two of the partners, may have advanced funds on behalf of the partnership creates nothing more than a debt from the partnership to the parties advancing the monies. It does not change the partnership structure. It cannot change the partnership structure. And there is no evidence before me upon which I could reach any other conclusion.

Second, on the evidence before me, again I am satisfied that the partners’ business commenced on November 4, 1991. Thus, in my view, the earliest any expenses might be deductible would be October 28, 1991, the date upon which Ms. Collins and Ms. Granove flew to Mexico and, shortly thereafter, completed the transaction for the acquisition of the property in issue. It would be extremely difficult, on the evidence before me, to attempt to allocate the expenses as between capital and current expenses, for the period of time October 28 to November 4, 1991. However, because of my conclusion with respect to the year in which the deductions are entitled to be made, that becomes unnecessary.

The third conclusion that I have reached on the evidence before me, particularly the documentary evidence, is that it is clear that most of the items in issue, most of the amounts in issue, were expenditures made in taxation year 1991. I have considered the submissions made and the evidence and I cannot find any valid legal reason to conclude that these expenses are somehow deductible in 1992. They may be deductible in 1991, certainly the expenses from November 4, 1991 and onward would be deductible in 1991. But that taxation year is not before me and I do not have to, nor can I make a determination in that regard.

I have already indicated that in my view the partnership was an equal partnership with each partner having 25%. Accordingly, and particularly in light of counsel’s comments with respect to the amounts expended in 1992, I find that any amounts in respect of which it can be established that they were actually expended are deductible expenses to the partnership in that year. There was no income in that year. The Appellant would be entitled to claim as his share of the loss in that year, in the proportion of 25% only.

I have not looked at all of the documents. I do know from Ms. Collins’ testimony that some of the receipts that were produced, I believe, in the group of Exhibits A-14 to A-16 or A-17, there are items which were clearly expended in 1992. Actually, they are Exhibit A-19, which covers the period October 31, 1991 to January 2, 1992 and Exhibit A-20 for the period October to February 12. Exhibit A-22 deals strictly with January 1992. I do not know what that represents. There may be others, but I do not propose to go through each document to indicate the items that relate to 1992.

I will ask that the parties give me a figure, or in the alternative, my order will be that the appeal will be allowed to that limited extent for 1992 and you can try to sort it out later on. It would be preferable, however, if the amount to be allowed is agreed upon. Let me know by the end of the week. I am here until Friday. That is all 1992 expenses are to be tallied and 25% of them will be deductible. That will include the airfare and other costs which were incurred by Ms. Collins travelling to Mexico to put an end to the affair.

Appeal allowed in part.